U.S. refiners scramble as White House eyes Venezuela sanctions

(Reuters) - U.S. refiners are bidding up prices for scarce types of crude oil needed for their most sophisticated plants as the United States reconsiders harsher sanctions on Venezuela that could further reduce imports of the country’s oil.

Trump administration officials in recent days met with U.S. oil company executives to lay out potential actions in response to the Jan. 10 inauguration of Venezuelan President Nicolas Maduro in an election it considered illegitimate.

Among other steps, U.S. officials have recognized the opposition-run Venezuelan congress as the only legitimately elected authority.

But the proposals that would most affect the energy industry involve banning U.S. exports of refined products to Venezuela or limiting oil imports - a move that, until now, the White House has not taken even after sanctioning individuals and barring access to U.S. banks.

“It’s more serious than I’ve heard before,” said a refining industry executive familiar with the White House discussions. “They are setting the table to pull the trigger if they have to.”

U.S. refiners have few supply alternatives if the Trump administration were to cut off crude imports from that country. Supplies of the heavy oils preferred by Gulf Coast refiners have been harder to secure in recent months because of cutbacks and production curbs in Western Canada, Mexico and Venezuela.

One type of U.S. heavy oil, called Mars, traded at a $6.80 per barrel premium to U.S. crude futures on Thursday, the strongest in nearly five years and up from a $4.50 per barrel premium on Tuesday, a U.S. oil broker said.

U.S. companies that depend on Venezuelan oil have opposed past proposals that would halt imports and did so again this week, said several people close to the talks. Two big refiners, Phillips 66 (PSX.N) and PBF Energy (PBF.N), cut direct purchases from state-run PDVSA last year, according to U.S. Energy Information Administration data.

Latin American advisers have warned the administration that oil sanctions could backfire by making the United States appear to be forcing political change in Venezuela, said a person familiar with talks among the White House, the National Security Council and oil firms.

U.S. Secretary of State Mike Pompeo has become directly involved, accelerating possible financial and political steps against Maduro, the person said. A State Department spokesperson on Friday said the U.S. is considering “all diplomatic and economic measures” to support Venezuelans working to restore democracy.

Venezuela last year exported 500,013 barrels per day of crude to the United States, its main destination for oil exports, down from 591,422 bpd in 2017, according to Refinitiv Eikon data.

The largest U.S. importers of Venezuelan oil last year were Citgo Petroleum [PDVSAC.UL], the U.S. refining arm of Venezuela’s state-run oil company PDVSA, Valero Energy (VLO.N), Chevron Corp (CVX.N) and PBF Energy.

Citgo, Valero and PBF Energy either did not respond to requests for comment or declined to comment. Chevron declined to comment on the potential for sanctions, but said it actively manages supplies and has plans in place to make necessary adjustments to ensure it can supply customers.

“The cautious approach taken by the U.S. in recent days – not imposing new sanctions right after Maduro’s inauguration – suggests the next step could be a meaningful escalation of pressure to try to restore democratic order,” Barclays analysts wrote in a note to investors on Friday.

Options on the table include restricting Venezuela’s imports of U.S. diluents that are used to make exportable crude blends; a full oil embargo on Venezuela’s shipments to the United States; and the recognition of an alternative government to Maduro’s, which could allow the international community to freeze and divert assets and revenues, according to Barclays.

(This story fixes typo)

Reporting by Marianna Parraga and Collin Eaton; Additional reporting by Jarrett Renshaw in New York and Matt Spetalnick in Washington; Writing by Gary McWilliams; Editing by Sandra Maler and Phil Berlowitz